It is an idea that has been around for several years and which is reemerging today, thanks to the war in Ukraine and Sino-American tensions. With the emergence of developing countries and Southeast Asia, it is time to reform the international monetary and financial system, which is almost completely dependent on the dollar. It is the only store of value in the world as the United States loses economic power to other giants like China.

During a symposium held this week in the Banque de France and attended by several dozen leaders of developing countries, from India to the Philippines, Governor François Villeroy de Galhau defended “the idea of ​​a cooperative multilateral international financial system” to end for “over-reliance on central currencies.” single”, dollar. “The status quo is no longer an option,” he said.

The dangers to come

Why revive this debate today? Because there is “danger ahead”. We must avoid moving from a dollar-dominated system to a non-system as opposed to, for example, the world of the dollar as opposed to the world of the renminbi,” according to the head of the Banque de France. “Such fragmentation will result in instability, especially creating the risk of leakage from one currency to another,” he continued. It will recall the competitive currency devaluations between the two world wars, when the dollar and pound competed for leadership. This bipolar system has resulted in chronic instability.

“We are on the eve of a major financial crisis,” judge Bernard Snoy, professor at the University of Louvain in Belgium, feared the next rate hike in the United States. This can cause capital flows from developing countries to America and destabilize dollar-indebted countries.

The international role of the euro

Developing countries are not opposed to such reforms. Mainly because Western sanctions against Russia “create very dangerous risks” for countries like China, said Andrew Sheng, former head of Hong Kong’s financial markets regulator. China, in particular, could start selling their dollars to hedge against future sanctions. But so far, they had no choice.

The dollar remains the currency in which global savings are placed. The role he was assigned was also sinister, forcing the United States to permanently issue dollar-denominated debt securities that investors continued to buy. As a result, the country collapsed under a tremendous current account deficit.

But where to find other reserve currencies? The euro could theoretically be an alternative. After all, this was the wish of François Villeroy de Galhau, for whom “we must really develop the euro’s international role”. India’s Harinder Kohli, former World Bank and now president of the Forum for developing countries, organizers of the conference, supported the initiative, as did Andrew Sheng. “The euro and yen should be international currencies, he defended. You have to. Otherwise, the next crisis will be painful for developing countries and will encourage them to create their own monetary and financial systems. But the eurozone still lacks safe public debt securities and real European Treasuries. Currently, public debt remains the debt of member countries.

Another problem is that the Sino-American rivalry and the war in Ukraine do not lead to increased cooperation at the global level.